3 Real Estate Investing Lessons I Wish I Had Learned Earlier

I started investing in real estate when I was 31 years old and experiencing the first real growth in my disposable income since I had started working full-time. I had started my own grocery arbitrage business, and it was growing like gangbusters.

I was in bad need of a mentor at that time. I was in need of a lot of education, but true to my personality, I chose to attack the problem of “what to do with my money” with the same fast forward drive with which I had attacked every company I had started.

Looking back, I’m not so sure I would change anything per se. But there are definitely three lessons I wish I had learned sooner in my life. If I had learned these lessons at a younger age — or even simply earlier in my learning curve for real estate investing — my own portfolio might look very different from what it does today.

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3 Important Real Estate Investing Lessons Learned

1. Testimonials Can Be Fake

I get a TON of emails from all kinds of real estate companies.

Admittedly, I click on every offer for free e-books, new websites, promotional offerings, newsletters and podcasts that I come across because I want to see what is out there and what is trending. I will write an article at some point about all of the absolute junk that is being peddled today, but that is for another day.

Right now, I want to focus on what happens everyday to investors; in fact, it happened again this morning to me. I was solicited with an email for a new “ultimate guide” for How To Build Financial Wealth With Real Estate… blah, blah, blah.” I write “blah, blah, blah” because the link led to a landing page that looked perfect: clean, smooth lines, all the right words, just like every other same old, same old landing page you see today.

Because there are companies out there that build hundreds of landing pages everyday for companies. They are hired to do projects, and they use perfect-looking templates that appear just like every other landing page. They use the same e-book with a slightly different title, and the info inside is often re-tread material put through a spinner.

You may be wondering how I can make such a blanket statement (or you may be nodding your head in agreement).

I looked at the testimonials! The photos are perfect: smiling with straight teeth and perfect hair. I clicked on a link this morning from an email that promised to show me the path to my financial freedom, and I landed on a page that, as I said, looked perfect and had two smiling faces with glowing testimonials about the company. With two simple mouse clicks, anyone can expose a liar who relies on fake testimonials to sell their company or product.

You right-click on the photo, and a box with about six options comes up. One of those options comes up as “Search Google for this image.” Click on that option and see what comes up. I found the same two pictures on skincare product ads, teeth whitening ads, and the guy’s photo even came up on Stock Photos as “Smiling, Happy Guy.” It made me laugh.

Early on in my real estate career, I was naive, and I just never imagined faking testimonials. I could not imagine someone thinking it was a good idea to post fake names, fake pictures and fake words about their company. Thanks to Google Image searches, using fake pictures is no longer a good option, and it is an easy way for an investor to root out the kind of person/company to avoid in business.

2. Cash Flow Is Not The Same As Income

One of the biggest fallacies that I faced as a young real estate investor was that cash flow was king.

It was a common mantra amongst wholesale property sellers and self-proclaimed mentors. When I began to attend local REIA meetings in Denver in the early 2000’s, that phrase was used dozens of times at every meeting and by every fast-talking, easy-buck artist in the room looking for newbies to work over.

It sounds kind of harsh, but that was the reality. There were only four kinds of people in the room — and I had no idea at the time. Out of 100 people, there were one or two who had good intentions and would help anyone who needed it. The rest of the room was divided into three groups:

1. People who couldn’t care less about anyone else because they were successful and only came to the meetings in the hopes of finding one person or one idea that could help them.

2. People who have no idea what they are doing, what is being said or how to get started (newbies). They look like deer in the headlights and have no idea that sharks in the room can pick them out the second they walk through the door.

3. The sharks. The ones who know exactly what to say and how to say it to make a quick buck off of the newbies.

I was picked out of the room quickly (I have never told anyone this story) by a couple who could smell the “I have no idea what I am doing” coming off me like a pheromone! They worked me over during a short three-week period for almost $10,000.

How did they do it?

They helped me do my first deal. Did they actually help me? No. I did all of the marketing for my first deal, negotiated the first deal and closed the first deal. But they were with me on my two trips to the property and the two trips to meet the buyer. They encouraged me that I could get more for my deal and that I just needed to learn how to talk.

I listened to them talk all about cash flow and how they equated it to disposable income. They knew that was the nectar that would sell this property. So they talked it up over and over. Cash flow = income = vacation = new car = backyard pool = private schools = new watches, fancy clothes, flowers for your wife. In hindsight, it was like watching a bug slowly fly into a zapper! He could not say no.

We closed the deal and made $20,000 on a quick wholesale deal where I assigned the contract. I split that money with them, when in reality, all they did was teach me a lesson. The buyer ended up buying many more houses from me, including properties in Denver and Memphis.

However — and there is a big however here — his first deal was not a cash flow king!

He didn’t lose money on the deal, but he heard exactly what he wanted to hear and made a decision on his own numbers. He was seduced by the words “cash flow,” and it definitely swayed him to the positive. He would later tell me that his mistake was equating the words “cash flow” with income. And only time and experience would help him (and me) understand that they ARE NOT the same!

3. There Is Only One Donald Trump — and I Am Not Him!

When I first started, I had this idea that all real estate investors start at the bottom. They all attend REIA meetings and learn the ropes from trial and error, and some even have mentors and pay for coaching. I just thought there was this process that everyone went through if they were going to be successful.

That simply is not the case.

At least, it is not the case for everyone. I should have known better, but I was so naive about investing that I latched onto a lot of really dumb thoughts. It happens to a lot of new investors. We seem to lose our bearing and forget the lessons that life has taught us. We fall back on this idea that real estate is somehow different and that common sense does not apply. We have to learn a whole new set of lessons.

So how does Donald Trump play into this?

I basically threw out every business lesson that I had learned in starting several extremely successful companies to that point and thought I had to learn all over again. I read several books by Donal Trump and failed to realize that no, not every real estate investor starts at the bottom. There are some really good investors who apply their common sense and good business judgement to their deals. I failed to realize that Donald Trump did not go through the same hard knocks and sure didn’t surround himself with the REIA crowd I described above.

He found great mentors and surrounded himself with people who knew A LOT more about certain subjects than he did. He gambled and took chances, yet always looked for ways to protect himself and was two or three moves ahead. When I started investing, I was two or three steps behind!

It cost me a lot of time, money and aggravation. I learned through some very hard years that investing in real estate was no different from any other business venture for me. Use your strengths and your smarts. Surround yourself with great people, and only listen to the advice of those who you know have your best interests in mind because they know your interests!

Lastly, never try to be someone else or follow in their footsteps. You can follow their path, but you need to make your own way. When I started doing that, my own personal portfolio began to clear up and resemble one I was proud of. My business began to flourish even more, and I stopped making dumb decisions — and I sure stopped seeking dumb advice!

It is easy to get caught up in trying to be someone else or duplicate someone else’s success, but it is hard to actually achieve.

I probably could have titled this article “100 Real Estate Investing Lessons I Wish I Had Learned Earlier,” but I thought we as a group could reach that number by sharing our experiences with each other.

Take 2 minutes and share a lesson you wish you had learned earlier with all of the other readers, and let’s build a great resource article for other investors!

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About Author

In 2005, Chris Clothier (G+) began working with passive real estate investors and has since helped more than 1,100 investors purchase over 3,400 investment properties in Memphis, Dallas and Houston through the Memphis Invest family of companies.

44 Comments

1) You can fix the house, you can fix the tenant situation, but you can’t fix the neighborhood. I own a handful of these homes

2) Doing the bear minimum to get your home ready for a tenant will save money.

BTW, there should be a # 4 for individual that shows up to the REIA. And that is the guy who shows up just to get out of the house for a little bit, stay the first 15 minutes of the meeting then head to the lobby bar to watch a game. I am that guy.

Great article but could you please elaborate on the “Cash flow is not the same as income” statement? What do you mean by that? Cash flow is what’s left after all expenses are paid. How is it not income (unless it is negative, of course)?

Cash flow is a buzz word and it is neither guaranteed nor always consistent. yet, often new investors talk of cash flow as if they can input it into their monthly budget for spending. It is not the same as the check a worker receives from his employer each week. Cash flow can change and be highly volatile on an investment property. Just because the piece of paper says it will be “X” does not mean it will be “X” every month guaranteed.

I see. I guess it depends on the number of properties/units – the higher the number the more reliable and less volatile is the cash flow. For a single property it has more symbolic value than real sending power. For a 100+ units apartment complex it is something one can live on quite comfortably.

thanks for asking this question and for getting the clarification. For me, cash flow essentially is income because of the extent I analyze all aspects of the transaction, I can count on it to be a pretty reliable number. But I can see how someone trying to sell me on an investment could skew things.

Saying it another way I think what Chris was really talking about is the difference between spreadsheet math cash flow, vs at the end of a few years income: net of turn over expenses, repair, replacing stolen appliances, stolen AC units, infrastructure falling apart due to old and not completely remodeled house.

There’s another way to solve this problem besides just owned enough so that averaging it out they still provide income.

Don’t buy high risk houses in the first place. Buy in top high school districts, great schools 6 or better. Over fix and rent to young familes wanting to stay in that school district.

Buying cheap thus high cap rate on paper houses, the renter base invariably jumps between rentals based on free first month rent. Leaving mid lease leaving you with an empty property with damage. A landlord will have a hard time fishing for income when the craigslist ads all have CAP letters and offering first month free hooks to get a renter!!!

My experience finds that zero turn over rentals in top school districts have higher cap rate averaged over many years than the theoretically higher cap rates houses that are cheap and in rough areas when averaged over several years.

Great article, Chris. Laying it all out there. I wish we had more of this sort of article.

My lesson: I used to assume that the intent of the courses, books, tapes and seminar was to actually teach people to be able to be real estate investors. And that no one would set out to provide the bare minimum while still raking in as much as possible. And that no one would intentionally set return policies with conditions that couldn’t be met, or that had to be approved by people who were intentionally unavailable until the expiration of the return by date. And that if a guru said you could have a call with him/her, you could actually speak to him/her. And that those gurus were still doing deals.
Silly me. Live and learn.

Do not argue with tax assessor, they are worst than IRS. In 1083 bought 12 units for 250K, assessor said it was worth 400k, even the judge agreed with me, since I pad what was in the paper for sale price. Told assessor, if he sells my property for 400k, I will give him 50k cash. big mistake on my part. He gave me name of his friend, he agrees to buy……at last miniuite said forgot to ask wife…..etc. Assessor dragged me with increase value for 10 yrs, had to appeal each year… I had moved 2000 Miles away….went thru hell for that statement, lesson learned.

That’s kind of funny, because I told the tax assessor the same thing, but that I’d split the profit over $X with the county, since he was citing poverty of the county for why he “couldn’t allow” my property to be assessed for $17/sqft. I read the tax assessor manual 2x, filed for a hearing. He backed down when we got the hearing schedule (I was scheduled for 8am -first on the docket!). Pretty sure he didn’t want to go in front of the panel to explain why his person had appraised my $60k purchase for $250k+. (California’s prop 13 does NOT allow “but we all know property prices will go up” as a consideration – only the value of the property at time of sale)

Chris, nice article. One of the biggest things I see in hindsight, is when you have a partner and he is good at something so you let him do it. learn how he does it. Go with him, or ask questions. I had a partner for nearly 20 years who very good at several things, he did those I did other things. When the partner decided to retire and I bought him out I had to learn how to do those things myself. Wish I had participated more early on.

That was a GREAT point! There are a lot of readers on Biggerpockets.com who I am sure are in partnerships and they really, really need to take that one to heart and act on your advice. I have a fantastic CPA who also happens to be a very active investor/business person with his wife. They do a lot of things and have been involved in many partnerships. He has always advised me that all partnerships end. Some good, some bad, but they all end eventually. The best thing you can do is decide on the front end – when you get started – how yours is going to end and I think your piece of advice fits right into that. Partners need to communicate, share and educate each other so everyone is successful later on.

You are correct in that most of us who learned a hard expensive lesson during the last RE boom and crash come out the other end a lot more focused and aware of the danger signs. Now if we can just educate enough readers for the next boom/bust!

Great post Chris, I never knew how to check and see if it was a stock photo on a testimony, that was funny. Also love the part about being yourself and doing your own thing. So true, life just flows better when we get there. Have a great weekend.

Thanks for reading and writing your thoughts! So true isn’t it about being yourself. You have to protect yourself at all costs and often…we need protection from ourselves. That sounds like my next article!

My worst performing properties and worst missed opportunities are those that I took advice from people who’s best interest was not my own. Ie wholesalers and Realtors. I don’t think their intentions were bad, but they certainly were not looking at for me.

Your comments are spot on. Often they are not trying to hurt us, but more trying to help themselves. The mantra is still true that we make our decisions for ourselves, but when we abdicate the responsibility to others (friends, family, colleagues, mentors, advisers) and lose, it is a painful lesson! The one deal that cost me the most was entirely put together by people that I trusted had my best interest and it was a total disaster for me.

Thanks for reading and leaving your comments. I am trying to carve out time to write more articles and really appreciate the support!

I want to make sure you did not read that as a reason not to attend a REIA. You may go once and realize there is nothing there for you. I can say I have attended a bunch of REIA meetings that are not worth attending twice. But you should absolutely check them out and just go in with your eyes open. Realize that you may look and even act new and that can make you a target for some.

Well, for one thing, do not be afraid to go in and introduce yourself. Leave the business cards at home though. DO NOT walk around just handing out business cards. Instead, strike up conversation with other investors and ask about them and their business. Show interest and listen. If you make a connection that is worth following up on, ask if you can email them and maybe grab a coffee, a beer, a breakfast or lunch. They will give you a card or share their email with you and MAKE SURE YOU FOLLOW UP!!

If you hide in the corner behind the fake plant (as many people do when they are uncomfortable or brand new) then everyone will know you are new and you will make zero connections. Same thing with walking around passing out business cards. I personally am not interested in connecting with the card collectors. I want to have connect with real people that want to be great investors. They may already be at that level or they may be new, but they share a desire to be really good at their craft.

How do you suggest that a newbie find the “one or two who had good intentions and would help anyone who needed it at the REIA”?
I have been trying to break into investing for over a year and a half and every time I try to find a Mentor at the REIA they are either too busy or don’t want anything to do with newbies.
I am struggling a lot like you in that I have spent about $60,000 on education from guru’s when I probably should have just taken that money a bought a house to rehab.

They may not be “mentors” if they do not have time to help. You are looking for someone that you have a connection with. You might enjoy talking about real estate or other topics and I would always offer to take someone for a cup of coffee or a breakfast/lunch. You are not looking for someone who will teach you everything and mentor you in one night. It is a process where they enjoy talking to you and you will do what they ask you to do as a successful investor. It is a process built over time.

Look for a partner not a mentor. Bring a deal to partner on or find one with them and glean info from them. When their money or time is in the pot too then it’s in their best interest to help you (because it’s helping them too). Someone who will make time to just mentor someone through the whole process is rare or a guru you waste $60k on. There’s a BP podcast all about this, don’t remember which episode but I’m sure you can find it with enough googling.
Mentors are overrated, find a partner.
Or just do it yourself and learn along the way.

Good piece with lots of solid advice for people that are new (and those that aren’t that new…).

I do have a question for you about that couple that you worked with on that first deal.
While it sounds like they didn’t do that much work and didn’t bring a lot of value to the transaction for you, where would you have been if you did not work with them?
Would you have just gone and done all the same things and just made $10K more on the deal? Or would you have not taken action at that time and maybe gone a significant length of time before getting to that point.
My point being that even if you basically paid $10K for a kick in the a$$ is that was what pushed you onto the path of becoming the successful investor you are today maybe it was worth it.

Shaun,
Good point! I look with fondness on my first deal, even though it was the most expensive one for the return I get. If I hadn’t bought that one, I’d probably still be sitting at my computer reading about it, instead of having just bought my 7th.

Thanks for reading the article and for asking such a great question that is often over-looked. Without enough time and space to write the whole story, I can only give bits and pieces. I was well into the deal when I met them, but did not have signed docs yet. I wrote an article about partnerships about a year ago and this is aprime example of my article. I partnered with this couple because I was not sure of myself. Would I have done the deal? I was already in the middle of it, so yes. But my short lived partnership with them did provide me with a faster push int he right direction and it taught me some things that I did not want to do going forward.

Just like paying a mentor or buying a program, I paid $10,000 and learned something from it and to your point, it has helped me going forward. (including learning how to avoid people like couple!)

This was a great article, as were many of the responders “lessons”. Thanks to all! I wish I had something to contribute right now….but have been stuck in analysis paralysis for too long (ok – maybe there’s my lesson!). Hoping to be out of it in a few weeks though!

Great article! Thank you for sharing! My lesson: stay away from condos like the plague. Condo/Association fees are too unpredictable and will kill your profitability. Another lesson: do not go for the perfect deal; this leads to analysis paralysis; instead, continue to make base hits and above all else do not lose money. Happy investing!

Chris, thank you for this excellent article, heading to my first REIA meeting tonight for their new person introduction, and I will keep your advice in mind. Is it normal to REIA meetings with speakers to have a cost associated? They have a speaker after the meet and great and they are charging $20 a person.

Albeit i’m a year late but i’m glad I came across this article, never knew about checking out those testimonials. Went to my first REIA meeting, lots of info but they also introduced us to a turnkey company which I considered investing with. It was the first time I heard about “turnkey”companies being a newbie investor and all, found out about B.P. through an investor there and found plenty info on turnkeys. That REIA, opened up my options, glad I attended.